Why Shouldn't the MLS Be A Public Utility?

Last week, at the Inman Connect conference, I got into a rather interesting — if dry and technical for non-lawyer types — discussion with Brian Larson about whether MLS could escape being classified as a public utility. I’m not going to go into that, since that discussion tends to have a lot to do with issues like anti-trust exemptions, regulation, various legislation throughout the years, etc.

Instead, let me ask a patented Notorious Dumb Question.

Why should not the MLS be a public utility?

Right now, I can imagine the readers of this blog divided into three groups. The first group is smiling acidly in incredulous bemusement, because they know what the hell it means for a MLS to be classified as a public utility. “You just don’t get it,” I can hear them say. To which I say, read the whole post, coz I think I do get it. 🙂 The second group is going, “What the hell does that mean?” And the third group has already hit the BACK button. See ya!

For those remaining… a brief (I promise) detour.

Public Utilities

A public utility (usually just utility) is an organization that maintains the infrastructure for a public service (often also providing a service using that infrastructure). Public utilities are subject to forms of public control and regulation ranging from local community-based groups to state-wide government monopolies. Common arguments in favor of regulation include the desire to control market power, facilitate competition, promote investment or system expansion, or stabilize markets. In general, though, regulation occurs when the government believes that the operator, left to his own devices, would behave in a way that is contrary to the government’s objectives.

Most public utilities in the United States have to do with power and water, although things like public transportation, insurance, cable companies and the like may also be public utilities.

The key salient facts for our purpose is that a public utility is (a) heavily regulated by the government, and (b) not subject to anti-trust laws. These go hand-in-hand.

The idea is that an industry as vital as water and power exists not merely for profit, but for the public good. So you want to encourage monopolization, which creates efficiency and market power, but control that via regulation (including setting the prices these companies can charge).

The Public Utility Argument in Real Estate

Back in 2006, when NAR was in the throes of trying to fend off an anti-trust lawsuit by the Justice Department, as well as possible legislation by Congress to regulate the real estate industry, then-president Pat Combs testified on Capitol Hill that the MLS is not a public utility:

Real estate reform advocates maintain that the MLS is a necessary utility, and as such, should be available to the public for use. As indicated above, the MLS is a cooperative that not only operates for the use and benefit of its members in serving their clients and customers, but it is created and operated, and its inventory provided by, the very members it serves. That distinguishes it from public utilities like water, gas or electricity, which are not created and operated by their customers, members of the public.

I wrote about some of these issues back when the Franchise IDX issue blew up at NAR Mid-Year. I don’t really want to rehash those. Feel free to click through and read those sections.

Instead, let’s ask whether Pat Combs’ argument remains valid five years since her Congressional testimony. Today, it is taken for granted that listing information is everywhere, and that having listing data is no longer a competitive advantage in any way. We have heard numerous thought leaders talk about how the industry needs to wake up, needs to modernize, needs to get with the program, needs to innovate, and so on — all of it premised on the idea that real estate information is a commodity, that information wants to be free, and control is an illusion.

According to the Report the existing MLS model in use today dates back to the 1960s when almost all brokers involved in transactions represented the seller; either as the seller’s agent or as the subagent of the listing broker. The seller paid listing broker who was in turn responsible to compensate the broker working with the buyer. There are approximately 900 local MLSs that appear to be stuck in this old paradigm. However, all this changed during the 1990s with the evolution of buyer’s agents, the advancement of the Internet, the subsequent and rapid sharing of real estate listing data online and the copyright door was thrown wide open.

Some ten years after the door was thrown wide open, we’re still debating who controls what and who should get what under what rules decided and enforced by whom.

So let’s go all the way and ask why not a public utility.

Real Estate Information As a Public Good

Imagine for a moment a bill in Congress that proposes the following:

Real estate information is of critical importance in consumer decision-making on the largest purchase of their lives.

High-quality, accurate information is incredibly valuable — as valuable as cable television or car insurance.

Real estate agents, all of whom are licensed by a state and therefore protected from open competition, create most of this information.

Therefore, all property information should be required to be submitted to a public database for ease of access by the public.

Real estate information utilities, formerly called the MLS, shall be exempt from anti-trust laws, but their rates, access rules, and such shall be regulated by the HUD.

In an age when MLS’s themselves are talking more and more about becoming consumer-focused, why is it a bad idea for Congress to pass this law?

Consider the benefits of this law:

National data standards, more or less overnight, enforced by the Federal government.

Heightened compliance: no more Association-shopping, no more insider-favoritism; the HUD regulators don’t much care who you know on the local MLS board. Plus, the penalty for failure to comply isn’t simply a fine or expulsion from the MLS, but loss of the real estate license.

Exemption from anti-trust laws; no more fear about getting sued by consumers, or by some new model of real estate brokerage, or whatever.

Possibly no more free data: just like an electric utility can and does charge a (regulated) rate for access to power, these new utilities can charge everyone for access to the data. Brokers can get paid for creating data in much the same way people with solar panels can sell their power back to the utilities that operate the grid. Consumers can get all of the information industry insiders do, but they have to pay for it somehow.

There are, of course, significant downsides as well. I can think of a few. I’m sure many of you can think of others.

I’d like to hear them. Or, if you think this is a fantastic idea, I’d like to hear that too, and why you think so.

(By the way, I have my own opinions on this, but for now, I’d really like to hear from you, the readers of wit and wisdom. I’ll followup later if there’s enough interesting opinions on this subject.)

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

14 Comments

Join the discussion and state your opinion. Some comments may be held in moderation. I try to get to them as soon as possible, but may be traveling or unable to approve comments immediately. I do not censor comments, but reserve the right to remove anything that looks like spam, trolling, or just outright inappropriate.

So the fragmented private sector that is the MLS ownership (as you know better than I would, typically not realtors) is working to come together on unified standards, albeit at a painfully slow and inefficient pace, but the thought is that federal regulation would be the way to improve the process?
That’s a surprising take for sure. The appraisal industry is going through some significant changes in their business right now – down to the language they are allowed to speak – and I’m guessing they might have some words of advice for us before engagement with the Feds for the common good. I’m hearing about the pending mass confusion ‘in the name of clarity’ already.
Rather than handing over privately built business tools to the government, why not expand public tax records to what is really needed today – given they were built with paper limitations in mind – and allow competitive checks and balances to govern both without forced intrusion upon one another? You know… Keep ‘em honest without stealing?

Rob, I think we have learned our lesson having the Feds do anything in business. Bad idea. I’m in favor of a national syndication data base with local MLS and or Associations partnered into the deal. That would benefit our industry and help solve many issues which you and I both heard last week at the Inman Data Summit.(Bad Data, Security, privacy) RPR is proving that centralized data works. I believe NAR should take the steps necessary to offer another value added service to our members that allows the local Associations to stay involved and reinvent their own business models at the same time. If we don’t soon, than someone else WILL come along with a better mousetrap. You think? Attached is my verbal opinion also: http://youtu.be/RuaHs766PtU

Making the MLS a public utility, though on the surface may look like it is in the best interest of the public, is it really? If you look at the last sentence of the definition of “Public Utility” from Wikipedia in your article, “…regulation occurs when the government believes that the operator, left to his own devices, would behave in a way that is contrary to the government’s objectives.”
Government objectives? This makes the assumption that government knows best. Regulating the MLS for the government’s own sake, or for what fits their objective, may not be what is best for the public. If what is wanting are more choices and freedom for the consumer, government regulation is not the way to go.

If there’s any government involvement – it should be the SEC. Open marketplaces, with service providers (agents/brokers) available at the consumers request – see NYSE, Merrill Lynch, e-trade etc.. Data would be provided by the public sector, members (brokers) and governmental bodies (tax rolls) – take your pick, there would be no shortage of good information.

You think we’re stuck in the 60’s? Hmm… today I received my hard-copy of the “official version of the Illinois Real Estate License Act of 2000” in the mail (yes, with stamp on it) – all 182 pages.

Help me understand, please If you made MLS a public utility I assume you will also give FSBOs access to post their property. Why is it a benefit to the real estate industry to give up half their income (listing side) or to make it close to impossible to build their own inventory? Because the public wants it? Well, the public doesn’t want to pay commissions – does that mean to keep the public happy the real estate industry should work for free?

I’d just like to point out that I haven’t said I’m in favor of something like this; those who know me would likely guess that government involvement isn’t exactly one of my favorite things. But I’d like to see more views/opinions on this. 🙂

I don’t see why the public would care or want to pay, really. Case of “why buy the cow.” There’s an inherent pushmi-pullyu aspect to real estate listings —- you need to advertize to find buyers. The public expects free access to data on what homes are for sale — and there’s always going to be agents willing to give it to them (namely, listing agents). Inasmuch as information is a commodity, the MLS is a cartel, not a utility (cartels are what commodities attract). But the internet has broken that cartel, quite possibly irreperably.

You’d have to convince me that a public utility would be the best way to fix MLS. I would hate to even imagine that HUD would be a better administrator of anything. Have you even tried to sell a HUD owned home lately? No wonder agents refuse to even deal with them, it’s a joke.

There are 2 major issues that have transpired over the last decade or so that have, on one hand been innovative and forward thinking and, on the other hand have created smoldering fires that tend to flair up on occasion when the winds shift.

IDX and Agency

Both of these issues need to be reorganized in order for any consolidation idea to evolve into reality.

IDX. It was a revolutionary idea when it started as Broker Reciprocity and I applaud anyone, especially Brian Larson, who spent countless hours hammering out rules, regulations and polices to get us to where we are today with IDX. Now we need to take the next step beyond the current IDX structure. Technology is such that there are better ideas available. The next generation MLS is knocking at the door waiting for someone to answer.

Fix #1. IDX.

IDX was the beginning of the problems revolving around the DOJ investigations. We have what other people can profit from. IDX was the venue in which they realized they might have a
chance at getting it and they did The Fix. Eliminate IDX and bulk, opt out only, syndication.

Agency. The states, RE commissions and NAR have pulled and twisted this issue into a frenzy and created nothing but confusion to the public and Realtors®. After how many years of mandatory disclosure I still see agency docs that are just plain wrong. Let’s eliminate the liability.

Fix #2 Agency.

Part 1. Eliminate “offers of co-operative compensation”. If you have any interest in fixing one of the biggest liability issues facing real estate brokers today, then eliminate offers of co-operative compensation. Buyers who don’t want to pay their brokerage fee directly may have to ask the seller to pay it for them, no different than asking the seller to pay closing cost. This would open the door for….

Part 2. The time is long overdo for real estate brokers to eliminate implied agency. Buyer’s who choose to be represented sign a buyer agency agreement the same as sellers sign a seller agency agreement. Buyer’s who choose not to be represented sign a “Not Represented” statement. No more undisclosed dual agency, or disclosed dual agency, or implied agency, or designated agency, or transaction brokers, or any other term you have for some form relationship or non-relationship other than flat out simple one-on-one agency relationship. We need to stop trying to
customize the agency issue to fit our needs and take the confusion out of the picture. And then, to round out the renovation we need

Part 3. Make the agency relationship exist between the agent and the client because that’s where the relationship really exist anyway. The principle broker, as always, is responsible for the agents actions and has an advisory role over every agent and transaction under their license.

Once you have these issues resolved, then MLS becomes a data
repository in which there is no one more qualified to administer than Real Estate Broker/Agents themselves. However if you take data administration away from the local level you lose the number one thing that agents and the public expect from an MLS, and that’s real-time, accurate data.

Public Utility? Maybe. That would certainly be an option for keeping other regulatory agencies from micro investigations of what would already be regulated under some branch of judicial jurisdiction.

It’d be an interesting experiment to compare reactions of “No more government oversight!” in this article with an article advocating the deregulation of real estate licensing. Is there the same consensus that we should abandon licensing altogether?

Your idea is great: let the individual states regulate (I see no reason why this should rise to the level of federal involvement). An MLS that is more easily accessed by consumers and non-member competitors will increase competition and provide better value to everyone involved.

Very interesting question. While I’d love to see
consumers have to pay for the massive quantities of data that MLS’s share, I do
not think they would. There have been attempts to make the consumer pay a small
fee for access and those quickly imploded.

Also, I think you need to separate this into two
concepts. What we currently call MLS is NOT close to becoming a public utility.
The public display of aggregated data is what you are talking about. MLS is and
always has been a unilateral offer of cooperation and compensation between
licensed real estate brokers. While I strongly believe the Realtor organization
should abandon the term MLS and give it over to the public, for now your use of
the term is technically incorrect.

I think the public display of MLS data, although not
fitting the definition above, is already a free public utility. Although there
are some attempts to hide data (particularly sold data), the fact is that there
is too much data available for free right now. The one benefit of making it a
public utility might be a forced clean up of the quality. The stats for bogus,
outdated, or just plain bad data available to the public on many national
aggregated sites is sad. Realtor.com is the only national site that has
acceptable data quality.

Finally, I have said that NAR’s new RPR service should be
the public utility for MLS data and sites like Zillow, Realtor.com, Trulia,
etc. should pay for clean data from the same, reliable source. Realtor.com
could do this as well. The public will not pay for the data, but those making
money off the data should pay the creators (brokers) for this valuable
commodity.